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A Chinese real estate company called China Evergrande has begun to struggle to pay its outstanding debts, and that’s a potential problem for the rest of the world.
The company is facing serious economic woes, causing havoc in both the Chinese market and in global trading as a domino effect of debts being called on the company lead to mayhem for creditors and investors alike.
The situation isn’t limited to just Evergrande, either. Numerous Chinese real estate companies are facing serious economic problems in the coming weeks and months. For instance, Fantasia Holdings Group Co. missed a $200 million bond that came due in early October, stoking fears that more companies in the real estate industry could begin to miss their repayments.
Investors feel that 2022 will be a major test of the Chinese real estate market. Numerous holding companies will be facing due dates on bonds, and investors are watching closely to see if this situation’s fallout remains isolated in China’s stock market or bleeds over into global trading.
Regulators in China have a close eye on things, according to reports from analysts. Efforts to slow down the housing market have also slowed property sales in the country, which is causing further issues for real estate companies.
Smaller companies like Fantasia won’t cause as much damage to global markets. However, the financial woes of these smaller real estate companies indicate to creditors that there is a serious storm brewing on the horizon. Some investors are already getting out in front of this, selling their shares ahead of what some analysts are predicting could be a brutal winter in 2022.
Because large companies like Evergrande are tied to many international markets, there is a serious risk that failure for the company could cause issues with bonds on a global scale. Analysts have also pointed out that things could be even worse than they look. Evergrande might be holding what experts call “opaque” debt, or debt that the company has guaranteed but that it didn’t disclose on its financial reports.
This “opaque” debt can be compared to a ticking time bomb. If the company has obligations that were not publicly disclosed, then investors could be in for a rude awakening when creditors come to collect. Things could get ugly in the global marketplace soon, and some analysts fear a repeat of the housing market crash that affected the US stock market in 2008.
